IG Group expects lower first-half revenue after regulatory clampdown

IG also announced that its German subsidiary had received a licence from the country’s regulator that will allow it to offer financial products across the EU after Brexit.

The new EU rules are designed to protect retail investors

IG Group Holdings PLC (LON:IGG) as warned that it expects first-half revenue to fall 6% due to the impact of new regulation.

The European Securities and Markets Authority has banned the sale of binary options to retail investors since July and placed restrictions on the marketing of contracts for difference (CFDs) since August.

The new rules are designed to protect retail investors who were previously allowed to make large, poorly-secured bets on financial markets through the apps and websites of online trading platforms like IG and CMC Markets Plc (LON:CMC).

ESMA rules hit IG revenues

IG said revenue in the four months since the measures came into effect is expected to be 10% lower than the same period a year ago as the number of new clients it has taken on has fallen to 14,600 from 18,027.

In the UK and the EU, revenue over the same period is forecast to slump 20%, offsetting 9% growth in areas that are not affected by ESMA rules. About 70% of UK and EU revenue in the four months has been generated by professional clients.

IG also announced that its German subsidiary had received a licence from the country’s regulator BaFin that will allow the group to offer financial products across the European Union after Brexit.

Shares were little changed at 608.5p in morning trading.

ShoreCap upgrades IG to 'buy'

Shore Capital raised its rating on IG to ‘buy’ from ‘hold’ with a fair value of 800p. It marked the first time the broker has given the stock a ‘buy’ recommendation since initiating coverage in August 2015 with a ‘sell’ rating.

“Note that trading conditions have been much more favourable in the last two months of this period than they were in Q1 (and September) but we still regard this as a resilient overall performance for the six months and would not expect to make material adjustments to full year forecasts,” said ShoreCap.

The broker added that it thinks the continued weakness in the share price during the wider market sell-off in October and November, ironically a period that provided a much stronger trading backdrop for IG, was “counter-intuitive”.

“Therefore, subject to the shares opening at a price under 700p, that the derating is overdone.”

New regulations to be introduced by the European Securities and Markets Authority have sparked a stampede of applications by retail investors to be classified as "professional" so they can bypass the new regulations

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